David and Société Générale: Jérôme Kerviel Fights Back

Look who’s fighting back: Jérôme Kerviel, the meek-looking French guy who became famous in January 2008 as the junior trader who’d lost €4.9 billion at French mega-bank Société Générale. Accused of a litany of shenanigans, from unauthorized trading to hacking into SocGen’s computers, he was condemned in 2010 to five years in the hoosegow, with two years suspended. SocGen called him a rogue trader who’d acted without his superiors’ knowledge. Kerviel confessed to a few of the accusations but claimed that his bosses had known about and had tolerated his activities. He just couldn’t prove it…. until now.

It was tough out there in January 2008, two months before the bailout of Bear Stearns: stock markets were cratering, banks were reeling from write-offs, “money-market equivalent” bond funds stuffed to the gills with mortgage-backed securities were blowing up, and real mayhem was on the way. Just then, SocGen conveniently discovered Kerviel in its midst, saw his trades, dumped all his huge positions on the tottering markets over the next three days, thereby adding to the carnage, then tallied up the numbers, and announced the loss: €4.9 billion.

Other banks were writing off even larger amounts—but they blamed lousy investment decisions, failed strategies, putrid SIVs, derivatives gone haywire, or piles of subprime decomposing in basements. But SocGen had a rogue trader. On January 24, it called the police, and life turned into a nightmare for Kerviel.

But on Friday, he struck back. His new lawyer, David Koubbi, announced at a press conference that they had filed a complaint against Société Générale, alleging that it had tampered with evidence. They were quite a pair, the mostly silent Kerviel dressed in a dark suit and pink button-down shirt with the top two buttons unbuttoned, and the articulate Koubbi, similarly attired, and with the top two buttons of his white shirt unbuttoned. A statement of sorts.

Koubbi told the story. During the investigation, some evidence had been sealed. All of Kerviel’s prior lawyers demanded access to it, in vain. But on April 18, the appeals court authorized Kerviel and his new lawyer to see some of it. One item particularly caught their attention: a CD that contained “wild recordings made without the knowledge of Mr. Kerviel, contrary to what the law allows” (video). The weekend before the affair blew into the open, SocGen had summoned Kerviel to its offices and interviewed him for twelve hours between January 19 and 20, 2008, to obtain a confession. Though it recorded the entire twelve hours, the CD only contained six hours of interviews, and only those six hours had been transcribed and introduced as evidence. Koubbi hired experts to examine the CD; they discovered that segments of the interview had been cut out, that the evidence had in fact been “doctored.”

But during the trial, “these pieces were presented as if they had been the entirety of Mr. Kerviel’s confession,” Koubbi said. “That’s why we filed a complaint for forgery and using forged documents because it resulted in a manipulation of justice.”

Then Kerviel spoke up: “I remember very well addressing one of my bosses and telling him, ‘you knew what I was doing,’ and he was immediately exfiltrated from the room.” Turns out, that scene wasn’t on the recordings and didn’t make it into evidence.

And they found another compromising piece of evidence that had been sealed, the “Escadrille file.” It alluded to fictitious trades that SocGen itself had undertaken to conceal losses, the same kind of trades that it had accused Kerviel of perpetrating.

Already last week, Koubbi had sued SocGen for fraud, alleging it had hidden from the court the fact that it had received a tax credit of €1.7 billion for its €4.9 billion in claimed losses, so that the damages should have been €3.2 billion, not €4.9 billion.

Despite all this, Kerviel hasn’t given up his faith in justice à la Française: “I’ve never lost hope that justice would prevail, and I hope that the truth will break out,” he said. The truth, if there is such a thing in banking. And he hoped that the lawsuits would help his appeal. A bit of justice would do some good.